Monday, December 27, 2010

Christmas is over, everyone’s had their say, so now it’s time for some questions and answers regarding the Savisaar/Yakunin business. For those who missed it: Edgar Savisaar, the leader of Estonia’s main opposition party, who also happens to be the mayor of the capital, has apparently been caught asking the head of a Russian state company for money. The Estonian counter-intelligence agency (Kapo) got wind of it and prevented the actual handover from happening. The information got leaked to the press and generated a massive shitstorm on the Estonian political scene, reinforced by the fact that the parliamentary elections are coming up in March. I’ve done my best to follow it and figure out what’s going on, and the relevant points are listed below.

Did Savisaar take money from Russia for a politically-motivated project?

Yes. This is not in dispute by anyone. Savisaar’s electoral base is heavily tilted towards the Russian-speaking minority (especially in municipal elections, where all residents get to vote, even those who are not Estonian citizens). As mayor, he got heavily involved in the construction of a new Russian Orthodox church in the capital’s predominantly Russian suburb. He asked for money to build the church from Vladimir Yakunin, the head of the Russian railroad company. The construction of the church was financed to the tune of some 13,5 million kroons (860 000 Euro) of money that came from the Russian government.

Was he being up front about it?

Yes and no. Simply inviting another government to pay for a community project is not illegal; it’s not even particularly immoral. However, the church financing was not transparent. The money actually came from the accounts of a Russian entrepreneur associated with the transit business. It was only after Kapo confronted Savisaar that an official contract was signed between the Estonian branch of the Russian Orthodox Church and a charitable fund controlled by Yakunin. That said, Savisaar did announce Yakunin’s involvement publicly at the start of the construction, so while the implementation is iffy, there’s really nothing major to put against Savisaar in this regard.

Did Savisaar ask Russia for money to finance his election campaign?

Yes. This is the question that Savisaar will not answer directly. All his public statements have called attention to the fact that the church financing was legitimate, that he never actually got any money, that he was cooperating with Kapo, that someone leaked secret information to the press, etc. However, the core of the accusation against Savisaar – his primary wrongdoing – is that he conspired with a Russian state official to secretly receive 1,5 million Euro of the Russian government’s money for his election campaign. Savisaar has entirely avoided this point in his press statements. He has not said that this is untrue.

Did he actually get the money?

No. The chief of Kapo invited him over for a chat and told him not to take the money. This was a day before Yakunin was due in Estonia on an official visit. Previously, a planned handover by somebody working for Yakunin failed in a slightly mysterious way that also suggests Kapo involvement – see below.

What if he had gotten the money?

It would have given his party a hell of a budget for the campaign, by Estonian standards. It also would have meant that a person who could potentially become the prime minister, or hold another key government post, would owe favors to the Russian government. Certainly Yakunin thought it was a sufficiently big deal to demand absolute secrecy, not discussing anything on the phone, not even setting up meetings on the phone, for fear of wiretaps. (Yakunin himself is a former KGB operative.) On the other hand, as was pointed out by the former Chancellor of Justice, the parliament actually recently passed a bill that de-criminalizes receiving money in secret for political purposes, so even in the worst case scenario, Savisaar would not have gone to jail.

Did he really need the money?

Yes. The Center Party is deeply in debt. Member contributions have been shrinking. Earlier this year, a construction company actually sued for bankruptcy of the party for failure to pay for renovations to their HQ. At that time, the debt got paid off from money that is handed out by the state as support for political parties – meaning that the Center Party’s own fundraising efforts have not been successful. In addition, Savisaar has recently gone through a divorce; his wife, who was a major Center Party figure as well, is now a member of the European Parliament for Estonia. Savisaar does not appear to have much of a personal fortune, especially not after the divorce. Even if this scandal had not happened, Savisaar’s chances to win the upcoming parliamentary elections would have been quite slim without the money to run an all-out campaign.

Is this election that important to him?

Yes. This is the big one, for the parliament, and it will determine who gets to be prime minister – who gets to run the country for the next four years. Savisaar’s support base will already be narrower, since only Estonian citizens can vote in parliamentary elections (all residents can vote in municipal ones, which is how he got to be mayor of the capital – a lot of the Russian-speakers are either citizens of Russia or non-citizens, and just have residence permits). The ethnic-Estonian voters are already galvanized against Savisaar to a large extent; in his efforts to gain the favor of the Russian voters, who tend to feel disenfranchised and hate the right-wing coalition parties, Savisaar has built up an image of someone who is very cozy with the Kremlin. His failure to denounce the Bronze Soldier riots in 2007 did not help, and this year he is up against an inevitable popularity boost for the pro-European coalition, on the back of Euro accession. His Center Party has always been one of the greatest political forces in Estonia, and it’s not unthinkable that he would win the parliamentary elections. But another four years in opposition will be terrible: he’s an old man, and some senior figures in his own party would not mind seeing him leave. I won’t be so categorical as to say this is Savisaar’s last chance, but it’s an increasingly uphill battle for him.

Has the scandal destroyed his chances in the election?

Not really. There are still enough voters out there who either benefited from Savisaar’s policies – such as old-age pension supplements to Tallinn residents – or just plain hate the coalition parties. The Russian-speakers in Tallinn and the heavily-immigrant northeast of the country have a deep distrust of the coalition parties, and will vote for Savisaar regardless, simply because he is the only option they see. And not to put too fine a point on it, but a lot of them won’t see the problem in their candidate taking Kremlin money to begin with.

Can the Kapo report be trusted?

A lot of Savisaar supporters just dismiss it outright. Until they see facts, they will not believe any of it happened; as far as they are concerned, the chief of Kapo is simply lying. Never mind that the report does actually contain some verifiable details (such as the presence of Yakunin at Savisaar’s farm outside of any official visits). This is something every reader just has to decide for themselves. In my opinion, if the Estonian security services were to lie outright, they would probably make it more compelling than this. Kapo did not leak the information, and was very reluctant to issue any kind of public statement at all; after the report I translated, they have not commented at all. If Kapo was out to discredit Savisaar, doing the coalition’s dirty work, they would probably have let the cash delivery go ahead and taped it, catching Savisaar in the act – not prevented it. Some of the senior Center Party members – those that have held the post of Internal Affairs minister, so have worked with Kapo directly – said they trust the report (although these are also Savisaar’s internal opponents). Finally, like I said before, Savisaar has not actually denied asking Yakunin for campaign finance. For that matter, Yakunin has not actually commented at all.

Was Kapo politically pressured?

Yes. Releasing information like this is highly unusual for any secret service. As little as the Kapo chief actually said in his report, it was still something he would not have done without massive political pressure from the cabinet.

What is on the conversation tape?

Nothing conclusive. Savisaar has demanded that Kapo release the tape of the conversation between him and the Kapo chief, when he was notified that Kapo was involved. For Savisaar, it’s a no-lose scenario: Kapo will almost certainly refuse for reasons of spycraft best practices alone, so he can continue confusing the media message. Even if Kapo released the tape, what could it possibly contain? A third-degree interrogation of a powerful politician? Or a civilized discussion, with mentions of continuing to draw the Russians in, just in case something interesting develops? Even if the Kapo chief was not putting out cigarettes on Savisaar’s arm, it doesn’t mean Savisaar was not caught doing something extremely unpleasant.

Who told Kapo about the deal?

Probably Denis Borodich, the deputy mayor of Tallinn. We’ll never know for sure, at least not for a few decades, until the memoirs are published. But Borodich was there at key points in the negotiations (even if the Kapo report is carefully structured not to suggest his direct involvement). He was originally supposed to receive the Russian cash from Yakunin’s man, but was conveniently unreachable on the day. He was out of the country when the scandal broke, and upon his arrival, was whisked away by Savisaar for another one of those civilized conversations. It’s likely that Borodich felt like he was being set up. Hell, maybe he genuinely felt that taking Kremlin money for campaign finance is wrong.

Who leaked the story to the press?

Hard to say for sure. Possibly the prime minister or one of the other key cabinet ministers, possibly some of the people that were notified after the fact. Apparently this included foreign diplomats (almost certainly station chiefs for intelligence services of friendly nations), and senior parliament members. It might even have been Ain Seppik or Kalle Laanet – two of the Center Party’s Old Guard who are said to be engineering Savisaar’s ejection. What’s certain is that the government was not at all disappointed when the leak occurred.

Based on section 1 and section 3 subsection 9 of paragraph 13 of the State Secrets and Classified Information of Foreign States Act, section 3 of paragraph 6 of the Minister of Interior Affairs’ regulation nr 55 of December 10th 2009 “General regulation of the Department of Security Police”, and proceeding from section 1 of paragraph 2 and paragraphs 3 and 4 of the Security Authorities Act, as well as the need to fulfill the legal duties placed upon the Department of Security Police to prevent damage to state interests by notifying the public, I am executing an early deletion of confidentiality from information that was restricted as “Secret” in accordance with subsection 1 section 4 paragraph 7 of the Government of the Republic’s regulation nr 262 of December 20th 2007 “Procedure for Protection of State Secrets and Classified Information of Foreign States”, which no longer requires protection from publication in the interests of ensuring the security of the Republic of Estonia, to the following extent:

Financing the Lasnamäe Orthodox Church

On February 9th 2010, the president of JSC Russian Railroads, Vladimir Yakunin, took part in the Railroad Forum that took place in Estonia. During a dinner on the same night, which was attended by Tallinn mayor Edgar Savisaar, Tallinn deputy mayor Denis Boroditch, Vladimir Yakunin, and chief of staff of the president of Russian Railroads Vladimir Bushuyev, E. Savisaar asked V. Yakunin for financial support for the construction of an orthodox church in Lasnamäe, Tallinn. V. Yakunin expressed an agreement to make the investments, asking first for a more exact calculation of the money needed for the construction. E. Savisaar presented a preliminary calculation, according to which the requirement was for 13,5 million kroons, which would be enough to finish the church’s façade. During the same visit V. Yakunin met with Metropolitan Kornelius of the Estonian Orthodox Church of the Moscow Patriarchate (hereafter EOCMP). During the visit they agreed that on the Moscow side, the issues of the church shall be handled by V. Bushuyev, who will need to determine the person who will deal with construction issues on the Russian side and notify D. Boroditch of this. The person in question turned out to be businessman Sergei Petrov, who was engaged in the coal business in Estonia through AS Petromaks Spediitor.

The decision to provide support in the amount of 1,5 million euro for the construction of the Lasnamäe orthodox church was made public during the visit of Russian Railroads president Vladimir Jakunin on February 9th, 2010.

Between February and October of 2010, approximately 13,5 million kroons were transferred from accounts of Sergei Petrov’s companies to the accounts of EOCMP, for the specific purpose of constructing the church.

Only on November 26th, 2010 a tripartite contract for the financing of the Lasnamäe orthodox church was signed by the St. Andrew Foundation, EOCMP and the Tallinn City Government.

Asking for Money for the Center Party Election Campaign

On May 10-11, 2010, E. Savisaar and Center Party MP Vladimir Velman visited Moscow, where they arranged for V. Yakunin’s visit to Estonia in June.

On June 23-24, 2010, V. Yakunin visited Estonia. V. Bushuyev arrived in Estonia as early as June 22nd, 2010. On June 23rd, 2010, V. Bushuyev, S. Petrov, Jevgeni Tomberg and D. Boroditch visited the construction site of the Lasnamäe church. On the evening of the same day, V. Yakunin arrived in Estonia, to take part in the midsummer bonfire at Edgar Savisaar’s Hundisilma farm.

On the morning of June 24th, the guests participated in a motorboat pleasure cruise in Tallinn Bay. During the pleasure cruise, V. Yakunin notified D. Boroditch of the fact that “you won’t get the 3 you asked for, but you will get 1,5”.

Next on the itinerary was a visit to the Kiltsi manor compound in Lääne-Virumaa county. At the manor compound, E. Savisaar, D. Boroditch, V. Bushuyev, S. Petrov and V. Yakunin stepped aside, on the suggestion of the latter, for a private covert conversation. During the conversation, V. Yakunin announced that the Center Party would receive support for the Estonian parliamentary elections in the amount of 1,5 million euro. 1/3 of that would be delivered in cash, the other 2/3 by wire transfer, based on invoices. At the same time V. Yakunin stressed to all participants that the deal must not be discussed anywhere by anyone. During the conversation, S. Petrov on one side and D. Boroditch on the other side were assigned as persons responsible for the delivery and legalization of the money.

On September 13th, 2010, E. Savisaar and D. Boroditch visited Moscow and attended a dinner at the Russian Railroads residence, which included V. Yakunin, V. Bushuyev, D. Boroditch and E. Savisaar. Several topics were discussed during the dinner. Among these were: the financing of the Lasnamäe church, the progress of the church’s construction, the timing of the various stages of construction in conjunction with the upcoming parliamentary elections, their tie-in with the elections; the importance and significance of the Dialogue of Civilizations conference on Rhodos; how Russia can officially, by sending its delegates, support the execution of the Rural People’s Congress that was being organized in Estonia by the Center Party. In addition to the above, the Center Party financing scheme was also discussed during the dinner.

E. Savisaar confirmed the agreement from Kiltsi manor in July: 1/3 in cash and 2/3 in wire transfers, mentioning that paying the entire sum in cash could also be resolved. After that, V. Yakunin demanded that all further dealings proceed with absolute covertness, referencing his extensive experience in operational work. The demand involved a complete ban on using phones to discuss issues of the money delivery, arranging meetings, and other sensitive issues.

On October 27th, 2010, S. Petrov arrived in Estonia and actively sought contact with D. Boroditch. As the latter was not present in Estonia, the contact attempt failed. On the next day S. Petrov left Estonia, notifying V. Bushuyev immediately upon arrival in Moscow that the planned meeting with D. Boroditch was not successful.

Based on the above, the Department of Security Police had sufficient basis to believe that the Russian side is actively seeking contact to deliver the money to the Center Party. Considering also the circumstance that the anniversary event of the Estonian Railroad on November 4th, 2010, was due to include a visit by V. Yakunin and V. Bushuyev, a decision was made on November 3rd 2010 to conduct conversations with Edgar Savisaar and S. Petrov, who was arriving in Tallinn on the same day.

During the conversation that took place on November 3rd, 2010, E. Savisaar’s attention was called to the opportunity for his person and party to be compromised, inherent in asking a foreign state for money for the party, and the associated security threats.

On November 4th, officers of the Security Police conducted a similar conversation with D. Boroditch, who had previously been on vacation.

On November 6th, 2010, a conversation took place between E. Savisaar and V. Yakunin, discussing the need to sign a tripartite contract to legalize the money provided to support the Lasnamäe church and avoid a possible scandal.

On November 26th, 2010, the Lasnamäe church financing contract was signed. V. Bushuyev arrived in Tallinn from Moscow for this, carrying a contract signed in Moscow by Sergei Scheblygin, president of the St. Andrew Foundation. The signatures of representatives from the Tallinn City Government and the EOCMP were gathered on the contract by Jevgeni Tomberg. On the next day, mayor Edgar Savisaar presented the contract at the Tallinn City Government.

Tuesday, December 14, 2010

Friday, December 10, 2010

Estonia is in the middle of Cyclone Monica - a massive snowstorm. Mostly it's being handled, a lot of parked cars are going to stay where they are for a while, but the streets are at least passable. My lolcar is doing great - it's light, short, has decent road clearance, and hardcore studded tires. It might need a few passes to get out of a snowdrift after being parked for a day, but it hasn't come close to getting seriously stuck yet. Anyway, Tartu is not next to any large body of water, so we've had it relatively easy. The northern coast is getting the worst of it by far.

This sort of thing tends to happen once a year or so, and I think people are used to it. As usual, the most important thing is not to panic. The second most important thing is to stay off the intercity freeways, and definitely stay off the side roads. Main roads get cleaned, but it's still a hazard; side roads are sacrificed.

Tallinn Airport reports that its runway is clear, but they've diverted allPolish cargo planes, just in case.

The biggest crisis is one particular stretch of the Tallinn-Narva(-St. Petersurg) road, where a couple of lorries on summer tires failed to climb out of a valley, leading to a massive traffic jam that got snowed in almost immediately. This being Estonia, people stuck there have Internet access, so reports and pictures have been coming in. The news daily Postimees is publishing information from the owner of a catering company, who got stuck in the middle of it with a van full of food. A number of intercity coaches are stuck as well, and those have full fuel tanks and on-board tea/coffee facilities. So people weren't in real danger - and it's not actually that cold, only a few degrees below freezing, though there's a wind chill.

(Update: As of publishing, Postimees reports that all the people have been rescued off the road. Some of them were housed in a local school gymnasium. The freeway is passable, albeit slowly.)

The road cleaners have been doing a heroic job all over the country, and from what I can tell, there's no real shortage of equipment, but drivers started getting too sleep-deprived after the first day or so. The army and the Kaitseliit (National Guard equivalent) got called in, with their tracked vehicles, to rescue people who were trapped in their cars out in the countryside. Besides that one highway block, the biggest difficulties were experienced by commuters who live outside Tallinn. Then again, it may be that these are just the people complaining the loudest: Postimees has published an article by a woman who, with her husband, had to spend a night in their car. While I'm sure it was very unpleasant for her, the exasperated calls for an explanation of why the army was not called in immediately to deal with the crisis are made very ironic by her own admission a paragraph below that she was rescued and delivered to her doorstep by an army caterpillar. I think it's worth pointing out that the Estonian army does not have a significant number of tracked vehicles anyway. The heavy trucks and armored personnel carriers can get through most of the snow just fine, but aren't equipped for road-clearing duty (can you even mount a plough on a Pasi?).

The other absolute heroes of the day are the rescue crews. This is literally a couple days after they picketed the government offices, demanding fair wages; those guys get paid scandalously little money. Not just for the difficulty and importance of the work they do, but by any standard. My furry flappy-eared hat off to them; they are unassailably awesome.

Overall, the astounding thing about the snowstorm is just how well the country is handling it. The number of traffic jams is not overwhelming; one person has died after walking out into the road when his Land Rover got stuck on the freeway and getting hit by a passing vehicle. Another two elderly people have died of hypothermia. That's tragic, but it could have been so much worse. Lots of people have been rescued. The cities are mostly operating as usual; there's less traffic on the roads and getting anywhere takes a lot longer, but the overwhelming majority of the population seem to be exercising caution and common sense with admirable results. Those who can help others, do. Those who can't, stay out of harm's way. It is a true testament to what is great about Estonia's peasant spirit. Worst snowstorm in memory? Don't worry about it. Move along, nothing to see here. We've got this covered.

Thursday, December 09, 2010

The most locally relevant thing in the Wikileaks infodump so far has been the business surrounding the NATO defense plan. Now, nothing actually secret has come out of the cables, as far as I can see - we knew back in Spring that a Baltic defense plan existed, and even that nine divisions were earmarked for it. The particular Polish and North German ports that would act as naval bases were not mentioned, but I expect anyone who's researched NATO naval capabilities and the state of the Baltic coast would find the choices either self-evident or at least expected.

Like with most Wikileaks material, the important part is not the information itself - which was either publically known, heavily suspected, or ought to have been inferred by the intelligence analysts of what used to be called the Likely Antagonist. The important part is that the implied factors have now been confirmed. Theories about how the other side might react now have a very convincing basis.

And when politicians are forced to stop bullshitting, everyone else gets a moment of clarity as well. A moment of true intentions becoming apparent.

Cue the statement of Russia's envoy to NATO, one Dmitry Rogozin - a loudmouth of some standing, admittedly, but someone who is acting in an official capacity as a representative of the Russian government:

Let that sink in for a moment. Russia, attempying to normalize its relations with NATO and no longer be seen as NATO's possible enemy, insists that NATO stop intending to defend its member states. Rogozin would like NATO to make a policy that it will allow Russia to invade NATO states and will not respond to it.

Under no reasonably conceivable circumstances is the Baltic defense plan a threat to Russia's current territorial integrity. Never mind that NATO has no interests in Russia - if you were an end-of-days conspiracy freak, you could come up with a scenario of NATO swooping in to secure natural gas supplies for Western Europe, but that gas comes from Central Asia and having control over the Nord Stream beach head is not enough to guarantee uninterrupted delivery - but in any case, nine divisions plus the local strength is not enough to mount any sort of credible invasion of Russia.

The Baltic defense plan in its leaked form could not possibly constitute any kind of threat to Russia's territory. The only reason Russia would object to it so strongly - more strongly than China today objects to US forces stationed in Taiwan - is if the defense plan were a threat to Russia's ambitions.

Take some time to think about the implication of Russia getting seriously upset about a legitimate Western commitment to protect the Baltics and Poland against invasion. For my money, this signals that Russia has still not come to terms with the Baltics falling outside of its sphere of influence, and if at this point it is unwilling or incapable to get control of the territory by military means, it has most certainly not discarded the option in its mid- to long-term intentions.

As I never get tired of saying: Yes, we're paranoid about Russia. Yes, they're actually after us.

Bonus 2: With my Tom Clancy rubber face mask on, I've actually come up with a scenario where NATO troops in the Baltics are a threat to Russia's territorial integrity. It involves a massive uprising of Ingrians - ethnic Finno-Ugrians living at the butt of the Gulf of Finland, the native population that was there before Saint Petersburg was built. How many genuine ethnic Ingrians are left is a matter of some speculation, but there is certainly a group of people who self-identify as Ingrians, and juxtapose that identity to the Russian state. Most of them make the effort to obtain Estonian or Finnish citizenship, and the movement does profess the theoretical desire of establishing an Ingrian state that would follow in the footsteps of Finland and Estonia, resolutely Western-minded. From what I've seen, the driving force behind it is hatred of the Russian central authorities, more than any genuine desire for cultural self-determination, and in the event of a massive institutional collapse in the Russian Federation the Ingrian banner may just be taken up by people whose primary intention is to reject the rule of Moscow kleptocrats.

If so, a significant NATO deployment just across the Narva river may be tempted to move in, under the guises of a peacekeeping mission. Hell, even material support and a base of operations would be sufficiently dangerous, if the Ingrian cause is used as a pretense by a sufficiently large rebel force. Remember your history. About a century ago, the Judenich corps, remnants of the Russian Imperial army, laid siege to Petersburg and came uncomfortably close to capturing it. Judenich was ultimately defeated by the brilliant military leadership of Leo Trotsky, but a big part of that was the withdrawal of support (and eventual outright betrayal) by Estonian command. This was the tail end of the Liberation War, when the Gulf was controlled by a British naval expeditionary force and Estonia had just defeated the German Landeswehr, liberated Latvia and fought the Bolsheviks to a stalemate on its eastern border. The Estonian leadership had no intention of prolonging the war with whoever controlled Russia, its purpose was independence and territorial security, not conquest; but if the Estonian army, battle-hardened and armed with Entente weapons, had actually backed Judenich and attacked Petersburg, Trotsky's militia could very well have failed.

Rogozin and his ilk might be seeing Ingria as a potential Kosovo - or potential South Ossetia, pick your poison. I don't believe NATO would rush to intervene in an Ingrian uprising, for pretty much the same reason that Estonia did not get involved in Judenich's campaign. But since we're talking about implications, here's one: if the Russian state leadership thinks that a credible NATO presence at the Baltic border could actually make a difference, then perhaps the Russian state is closer to the brink of failure than we think.

Tuesday, November 02, 2010

A bit of number-crunching for you. I was just watching the new Have I Got News For You, and it mentioned that the new UK government was raising old-age pensions, to a flat rate of 140 pounds per week.

That's 20 pounds per day, or 600 pounds per month for ease of calculation - about 10 823 kroons. The Estonian statistics database tells me that the average old-age pension in Estonia was 4 766 EEK in the second quarter of 2010.

Of course, the cost of living is higher in the UK as well. I've yet to find a clear source of data for actual Purchasing Power Parity coefficients between countries, the closest data is GDP by PPP - and using absolute GDP numbers, you can use that to determine actual PPP factors. But an easier comparison is The Economist's Big Mac index. Here's the latest historical data: a Big Mac costs the equivalent of 3.68 USD in Britain, and 2.85 USD in Estonia. This gives us a factor of 1.29. So, the cost of living in the UK is 29% higher than in Estonia.

For a UK pensioner to have the same purchasing power in Estonia as they enjoy in the UK with this new increase, they would only need 8390 EEK.

So on average, British pensioners are 76% better off than Estonian ones.

I'd love to compare working people's relative wealth as well, but the UK doesn't seem to be publishing good wage statistics - the closest I got was this, which is a bit out of date, and only reports gross numbers. If a reader can point me at a better source of numbers, I'd appreciate it.

Monday, November 01, 2010

The key thing to bear in mind is that for the world as a whole, spending equals income. If one group of people — those with excessive debts — is forced to cut spending to pay down its debts, one of two things must happen: either someone else must spend more, or world income will fall.

Krugman's being disingenuous. He says that globally, spending equals income, and if you don't spend, others don't get income; and that people with high debt levels stop spending, which is a Bad Thing(tm).

However, where does the borrowed money come from? Either from "quantitative easing", which means it really does come from nowhere, or from capital markets, which is money that was saved and invested (i.e. not spent) by others.

Spending your way out of a recession is a short-term fix. Long-term, the world needs fiscal responsibility (not necessarily austerity, but responsibility), so that people do save money and put it into banks and treasury bills, so that the capital markets do have liquid cash to lend to businesses.

(The severity of the financial crisis was not due to a lot of lost money - it was due to the financial institutions' unwillingness to extend credit to businesses, even ones in good fiscal shape. Global business does not work on cash up front, it works on promises backed by banks, and when banks stop supporting the promises, the entire machinery seizes up. That was the main problem - the billion-dollar losses only impacted the banks' employees and shareholders.)

In this crisis, quantitative easing kinda-sorta did the job it was supposed to, in the short term. But its usefulness is limited to emergency relief. If you keep pumping liquidity into capital markets via quantitative easing, you just get hyperinflation.

Krugman says that government should pump money into the economy, if the private sector is too scared to spend. That's fine, but where does the money come from? Either from quantitative easing, which has been stretched to the limits already (because that's what the US and the Eurozone have been doing), or from capital markets. Where do capital markets get the money? Either from quantitative easing, or from private sector savings.

Krugman's advice for the US is to spend on public works, driving up internal consumption. That's money that will never be compensated by liquidity gathered from outside the US economy. (Germany pumped money into its economy briefly, before switching to austerity; and it actually managed to stimulate industrial production and export growth. The tax revenue from that, the influx of liquid cash into the German economy, will probably outweigh the money spent on the stimulus.)

Krugman advocates debt relief for homeowners, saying that it will do less damage to the economy than mass foreclosures. He's technically right, but the argument doesn't reflect the big picture: without great damage, there will be no change in behavior, and without a change in behavior, the mistakes that led to the global crisis will simply be repeated.

You can blame the greedy and unethical investment bankers all you want - and don't get me wrong, they are complete bastards and deserve every last morsel of hatred they are getting - but all of their evil schemes would never have worked if it was not for the greed and short-sightedness of the everyday consumer, who wants a McMansion and a BMW and a 60-inch plasma TV, and ignores the fact that he can't actually afford any of it. Politicians won't say it, for obvious reasons, but the underlying cause of the financial crisis is not the greedy lenders - it's the greedy borrowers.

The failure of the financial oversight mechanisms to prevent the bubble is so apparent because the mechanisms themselves are so obviously necessary: nobody ever actually expected the lenders to not be greedy. It was always assumed that their greed will expand to fill any available volume. That greed can be checked by two means: government regulation, and the common sense of the borrowers. Yes, government regulation failed. That is no excuse for borrowers to escape responsibility for their own common sense.

Back to Krugman's arguments. For capital markets, and by extension the globalized economy as a whole, to be efficient and healthy in the long term, there needs to be a supply of genuine assets, genuine liquidity. Any kind of deficit spending must be covered by money borrowed from people (or companies) who saved it. People who have actual asset-equivalent that is not being used right now, and can be given to someone else to use for a time.

These savings only appear when the private sector spends less than it earns. It's a crucial and irreplaceable component of a healthy financial system. It's not about morality, mr. Krugman - it's about mechanics.

Tuesday, October 26, 2010

Picked up my new credit card today. It's one of those backup cards, that don't actually cost you anything unless you carry a balance (and this one apparently allows you to actually deposit money into its linked account, creating a debit balance above what the bank is willing to lend you). I've had one of these forever, but only remember actually using it once, after graduation, when I moved out of the student dorm and needed quick cash for the deposit on a rental apartment. Yeah; that would have been summer of 2005.

Here's an interesting observation. Since there is no actual cost for having the card in a desk drawer somewhere, I figured I might as well raise the credit limit, to the maximum of what they'll give me. The previous limit had been set somewhere around 2006 or 2007, and my income's grown a bit since. It used to just be a matter of asking for it - the bank teller would bring up my account history, see how much money was coming in, and the software would calculate the pre-approved max limit.

Not so any more. Despite being a fiscally very responsible person with most of my financial business at the same bank and no history of payment troubles at all, I could not reset the credit limit right then and there. Any change now has to go through an actual credit approval board.

Overall, this is a good thing. It's not like I actually needed credit, and a layer of sanity checks at Estonia's large consumer-facing banks is healthy for the country.

Tuesday, October 19, 2010

Here's a bit of a controversial thought for you. This gets really tangential, so try to keep up.

One uniquely Estonian experience is that of two native Russian speakers meeting outside Lasnamäe and talking to each other in Estonian. It's been twenty years; there's plenty of people in my generation who have grown up, gone to university, and gotten office jobs in Estonian-speaking teams. People who have no problem defaulting to Estonian.

But this is a very difficult language, and even if you're fluent, it's incredibly hard to lose an accent. I'm told that my accent in Estonian is not that of Russian, rather an odd and indistinguishable blend, but it's there; with anything more substantial than a conversation with a Selver cashier, people will realize I'm not a native speaker. There is also the issue of names. There is very little overlap between Estonian and Russian namespaces; with the exception of a few universal copouts, once you learn a person's name, you will know whether they are Estonian or Russian.

This is not a hard & fast rule. I've known people with Russian-sounding names who spoke no word of Russian and looked about as Nordic as you can get, and I've seen people with Estonian names born & raised in Ida-Virumaa, struggling to make themselves understood. I've also seen Russians who get married and take the Estonian spouse's last name. This can result in two kinds of hilarity: a girl with a Russian family name that stays in its masculine form, against the rules of Russian grammar, or a guy who took his wife's last name because he thought it might help him succeed in the workplace. (People who think this is a significant factor tend to underestimate the importance of actual competence, and as a result, fail.)

Anyway, as a native Russian speaker in Estonia you will occasionally find yourself in the very awkward position of speaking to somebody else in a language that is foreign to both of you, trying to figure out a non-offensive way to switch to the language that is far more comfortable. The difficulty is that if you just switch to Russian outright, you may end up being perceived as one of those assholes - the ones who go through life with a massive butthurt about linguistic discrimination. The people who actually have an opinion about the Language Inspectorate.

The interesting thing I've noticed is that these encounters have been getting a lot more frequent, and more importantly, people will often not bother switching to Russian any more. Yes, we both know that we can express ourselves more clearly in a different language, but the difference isn't that great any more, and there is a social penalty to switching away from Estonia. That social penalty is higher than the comfort.

You can call it conformism. But there's a more interesting parallel.

One of the enduring memes of Estonian minority politics is the status of the Swedish language in Finland. It's an official language, even though only about 6% of the population are native Swedish-speakers; all the street signs are in both Finnish and Swedish, and so is all the communication with state agencies. This is trotted out as an example to Estonia, proof that a nation state can be accommodating to a national minority, and that Estonians should try not to dislike the stubbornly Russian diaspora so much.

Previously, my reaction to this was that Sweden is not to Finland as Russia is to Estonia. Russia is to Finland as Russia is to Estonia; and Sweden is to Estonia as Sweden is to Finland. Sweden has conquered Finland at some point in the distant past, true; but this is now pure history, not the experiences of any living person. Hell, it would be quite difficult to find a Finn today who was alive before 1917 - the last time that Finland was not a sovereign nation! Finnish society, as it is today, is not threatened from within. It can accommodate the Swedish majority with little effort, and feel good about itself doing it. Just as the 9%-strong Russian community in pre-WWII Estonia enjoyed a broad cultural autonomy - broader than it's been since 1991, despite the fact that Päts's republic had every reason to expect trouble from eastwards. Travel today to the countryside around Haapsalu, and you will find road signs with village names in Swedish; the same will happen in Jõhvi fifty years from now, when Estonia is full of people for whom Russia is a land of St. Petersburg schoolteachers, coming over for a cheap coach tour of medieval castles, or filling up Old Town hotels in the mid-January off season because that's when they celebrate Christmas, the weirdos.

What I've discovered recently is that Finns actually don't like their Swedish population very much, and will not be particularly welcoming (even by Finnish standards) to a tourist attempting to engage them in the Swedish tongue. I've seen it happen, in the Academic Bookstore in downtown Helsinki, of all places: a younger saleswoman pretended to not know Swedish at all, but spoke it passably when chided by an older colleague.

Furthermore, the FennoSwedes - native Swedish speakers living in Finland - are quite actively disliked and distrusted by the general Finnish public. Not just because they speak a different language, but - and here is where I get to the point - because they tend to be the most wealthy, accomplished and happy demographic in Finland.

And the native Russian speakers who no longer care about switching away from Estonian? Maybe it's my own selection bias, but they tend to be yuppies. In the good, original sense: Young Urban Professionals, educated, with above-average incomes, and proud to be self-made. I'm not claiming causation; to say that just learning fluent Estonian is enough to succeed would miss the point completely - in fact, that's exactly what the discrimination paranoids would say. But perhaps there is a correlation. Perhaps the people who have it in them to become proficient in a foreign language or two, to improve their skills and work on their own careers, and to stop caring about nationalities, seeing the Estonian nation as a culture instead - perhaps they will evolve into the natural, meritocratic upper class of EstoRussians that will come to be despised by Pets from Väimela for a completely new set of reasons.

Monday, September 13, 2010

From Dead Air by Iain Banks:

'I believe in truth,' I told her. She was smiling a little now. I was making a complete idiot of myself but I didn't care any more. 'There; I said it. I believe there is something pretty damn close to objective truth more or less all the time and I'm not accepting this shite about everybody having their own truths or respecting somebody else's opinions just because they're sincerely held. The Nazis sincerely hated the Jews; they weren't just kidding. I'm not respecting their fucking ideas just because they were deeply held. I believe in science, in the scientific method, in doubt, in questioning, in facing truths, not hiding from them. I don't believe in God but I admit I could be wrong. I don't believe in faith at all because faith is belief without reason, and reason is the only thing we have, the only thing I do believe in. I think people have every right to believe in anything they want, no matter how ridiculous it might be, but I don't accept their right to coerce others into the same views. And I certainly don't accept any right they might think they have not to have their views challenged just because they're going to feel peeved in the process.

Well fuck me sideways with a chainsaw, Edward, but wouldn't it just be swell if an analyst publishing long-winded treatises full of graphs actually took the time and effort to investigate these special factors, and contemplate their effect on the model he's trying to apply? All the more so after admitting his previous predictions have been wrong?

Thursday, August 19, 2010

Last time I really, really wanted a Nokia was when they released the Booklet 3G, and I kinda knew the HP Mini 5000-series were better overall. I'd almost given up on Nokia, with their dark period of extending S60 far past the limits of its usefulness. And yet it only takes one really good-looking handset to make me start thinking about the company again. Once you do start thinking about it though, you might realize that Nokia actually has some quite important things going for it.

Nokia's utter irrelevance at the high end of the marketplace in the last year is essentially attributable to its one-time decision to switch its focus and decide to be a "services company", not just a hardware vendor. Like so many bad decisions, it was justifiable at the time: Nokia was at the top of its game, owned the market, and could not see room for organic growth.

The external factor that decimated Nokia is the rise of touchscreen devices. The company's own products aren't necessarily bad at what they were designed to do - S40 is still the best featurephone platform out there, and S60 worked well enough on midrange keyboard-based devices. Hell, they even managed to release a genuine cult device on S60, the E71/E72.

However, Nokia kept S60 around for far too long. It ran slow already on my N85, and was positively ghastly when extended to touchscreen devices as S60 5th Edition. Nokia did itself no favours by launching its touchscreen lineup with resistive displays, but even the capacitive X6 was confusing and uninspiring with 5th Edition. And while Nokia's E-series hardware was decent (if sluggish) - the E51, E71 and E75 looked good and seemed to be built well - the flagship N-series models were made from cheap materials and had pretty terrible reliability.

Nokia's presumed focus on services was not aligned with the market direction: Ovi, their service platform, paid a lot more attention to serving music and video content than empowering third-party developers. Symbian in general and S60 in particular did have a lot of devs, but Nokia's waffling and a lack of convincing halo devices wasted all that goodwill. Still, the lack of a vibrant app store is not the biggest problem: in terms of actual functionality, there is nothing that my Android phone can do that an upmarket Nokia cannot. (Is there a Kindle app for S60?)

The irony is that even at S60's worst, the functionality of Nokia devices was not just compelling, but overwhelming. I sold my factory-unlocked iPhone 3G and spent another eight and half months keeping my N85 alive because there were things I did every day which the device with the industry's best hardware could not do for love or money. The Finnish phone was slow, its keypad kept cracking and coming unglued, and the headphone jack fell apart every few months. But by God, it ran JoikuSpot, it ran Fring in the background, and Nokia's native podcast software was the best that I have seen anywhere, before or since.

Half way through its downturn, Nokia announced Symbian^3, a new release that promised to get rid of S60's sluggishness and frustrating limitations (like the preposterously bad networking stack, which could not use ambient WiFi without user prompts - at a time before 3G data became inconsequentially cheap in Estonia). The problem with S^3 was that it stuck to the S60 UI. While I can understand the reasoning - Nokia wanted to leverage the enormous installed base and give users a familiar visual experience - S60 5th Edition was just never good, even when it had the hardware to make it responsive.

The N9 leak suggests that Nokia may finally have a solution. This is an entirely new operating system, a wholesale break with Symbian. It's called Meego, and is the merger of Nokia's own Maemo (a Linux derivative that it tested on its Internet tablets and the N800 phone) and Moblin, a barebones OS that was developed by Intel for quick-booting low-power PCs.

Meego's potential advantage over the Apple and Google operating systems is that it has both true multitasking (which Android offers but iOS doesn't, even in its latest version), and that it gives developers access to the phone's hardware at a far more extensive level. It is also designed from the ground up with modern hardware in mind. The UI is still the part that worries me the most, but the video in Engadget's N9 post makes me cautiously optimistic: it's certainly not as bad as S60's widget jumble.

So with the N9, Nokia has beautiful hardware and potentially very good software. It also has some functionality that makes it stand out to geeks like me. To make Nokia and Meego truly relevant again, it needs something more. It needs a killer app. And thanks to Nokia's one unassailable success during its "services company" phase, it has one: Offline navigation. This is the ability to download maps of a city/country/continent onto your phone, and then use the device just like a standalone GPS unit. Nokia's adversaries cannot compete on this front.

The iPhone has a Tomtom app, but it's expensive and almost requires a special hardware accessory, to boost the device's mediocre GPS receiver.

Android is only just starting to get support from mainstream GPS vendors: there's an app from Navigon, which I've tested. It's good, but the full version is expensive, and only has maps for Europe.

Google Maps, which is available on both devices and covers the entire world, does not include navigation functionality. It also doesn't store maps locally - it only downloads data for the bits you're looking at right now, and deletes everything when you exit the application. You have to re-download the maps every time you use the app.

The navigation-enabled version of Google Maps is Android-only, officially exclusive to the US and one or two other countries.

You can get a cracked version of Google Navigation that works anywhere, and a version of Google Maps that stores the map data locally once you've looked it up once. Google makes no effort to block these, because it's not maintaining exclusivity out of its own free will.

Map data is difficult to gather, so it's extremely expensive, and there are only two companies in the world that have access to a comprehensive global catalog: Navteq and Teleatlas. Google just licenses the data from these companies. So do all the other makers of personal navigation devices. Google would love to offer its Navigation app on every Android phone in the world, but the licensing terms for the data prevent them from doing it.

Even if you have the cracked version of Google Navigation and Google Maps, it still requires a WiFi or 3G data connection at least often, if not constantly. This is fine if you're in the US, where your operator covers the entire country and unless you wander into Canada or Mexico, your 3G data costs the same as if you were at home. In Europe, phone contracts are limited to your own country. If I travel into Latvia or Finland, I'm using 3G data as a roaming service, a guest on another operator's network, and that is just expensive as hell, even with recent EU caps on roaming charges. The further I travel away from home - and the more I feel the need for satellite navigation - the more prohibitively expensive it gets.

Here's the clever bit. Nokia owns Navteq. It has free, unlimited access to global map data. (Navteq is a profitable enterprise on its own, Nokia isn't subsidizing its operations out of its own profits.) Now, Nokia has had decent offline navigation since the early days of S60, but in the last year or so, it's decided to stop charging for it. All newer S60 devices, and all future high-end Nokias, have free, comprehensive offline navigation. No need to hunt for WiFi or pay for data roaming, no need to wait for the phone to download maps on the fly. (You download them at home, before you start your trip, using your fast broadband connection - then they just sit in the phone's memory, whole countries at a time.)

The cost of TomTom for iPhone (which only covers a few countries per purchase), or the cost of Navigon for Android (which doesn't even cover Asia or the US right now regardless of how much you pay), is comparable to the cost of the entire smartphone, when you buy it with a long-term contract and your operator subsidizes it. It is only slightly less than the cost of a standalone GPS navigation unit (which you need to keep charged separately, carry around, worry about leaving in the car, and which is difficult - and expensive - to update with data about new roads or different countries).

All Nokia needs to become a massive force in the high-end phone market is a set of hardware and software that doesn't completely suck. Its unique and overwhelming advantage in the navigation space will do the rest.

---And if Nokia's PR department is reading this, I would love an N9 review unit!

Thursday, July 22, 2010

From the euroblog circuit: EU arbiter upholds the decision of a Dutch court to prevent coffee shops from selling to foreigners. (I'd like to see them try to enforce it, by the way, and then see what happens to tourist revenue.) My response: I understand why, to overturn the decision would effectively open up the Common Market for free trade in cannabis, but in a general legislative sense it's still Wrong(tm). In fact, it's legally tantamount to Denmark preventing its newspapers from publishing Muhammed cartoons drawn by exiled Iranians.

Because in both cases, it's being done to prevent visitors to your country from being stoned to death.

(Badum-tscht. Look, it was either this, or put that joke in my standup routine, and those people are actually paying for a ticket.)

Disclaimer: My personal position on weed is that as long as alcohol and tobacco are legal, banning soft drugs is just disingenuous; and empirically, people get into far less trouble on weed than they do on Jägermeister.

Monday, July 19, 2010

One and a half big story in Estonia these days, of some interest, at least in a "what are these people thinking?" sense.

First, we finally got the final word on Euro accession, and the tinfoil hat brigade which refused to believe that the exchange rate will stick (it did, 15.6466 - no change since 1992) are now screaming about the inevitable price increase due to everyone rounding the prices up to the nearest full Euro amount.

The first relevant point is one that I've actually made in my standup comedy routine (to very few laughs): this may be true, but it's a stupid argument. Over the last, what, five years, Estonia's been through a boom, a bust, tax hikes, oil at $150 a barrel, and twenty-percent unemployment. Worrying to this degree about the rounding is about as useful as worrying about cancer when you live in Haiti. You're not wrong, but you've got far more immediate problems to worry about.

The second point is that this is as good an example of a self-fulfilling prophecy as you can have. Shops and restaurants are not stupid, at least not the successful ones. Prices will rise to the level that people are willing to pay for them. (I've talked about this as far back as 2007; probably earlier still, just can't find it right now.) Competition between big supermarkets may keep margins on food low (but won't, necessarily, see this Ekspress article for insight). Even then, any opportunity to raise prices will be seized upon. The only barrier to this is the consumer's inability or unwillingness to pay the asking price. Enough downward pressure can result in prices being lowered - that's how we ended up with actual deflation in 2009 - but if the consumer is expecting the shops to raise prices, and is prepared for this mentally, then naturally the shops will do just that. They'd be fools not to. Especially in a case like this, when the blame and the bad will is not actually directed at the shops, but at the government.

Don't like that Vapiano raised prices from 60 to 62 kroons? Don't eat there. Don't like that the loaf of Rimi bread which cost 15 kroons yesterday is 15.65 now? I'm quite sure Säästumarket would greatly appreciate your patronage. (Wait, Säästumarket is owned by the same company as Rimi. Try Konsum or Prisma, they're at least roughly based on Estonian capital.)

Now, the reason why so many Estonians are so convinced of the inevitable rounding-up is because they are entirely unused to the value of currency fractions. The smallest Estonian bill is 2 EEK, and that one actually sees a lot of use. Fractal prices exist, but you either pay by card and don't notice, or you get a small number of sent coins. Which you either recycle quickly without ending up with a big pile of metal, or you just dump into a jar at home. (For an interesting analogy look at Sweden, which has a small-value currency and prices roughly numerically the same as ours, but the smallest coin they have is half a kronor. Even that one you'll almost never see if you're a tourist.)

Estonians don't expect europennies to be worthwhile, but they are, and the Eurozone gets away with fractal prices quite nicely. Just today I paid 5.90 EUR to get from downtown Helsinki to the airport. Hell, look at Latvians: their currency is denominated at about a Euro and a half (originally priced at parity to GBP, but pegged to the Euro), and the smallest paper bill they have is 5 Ls - about 130 EEK. You talk to Latvians about rounding all the prices up to the nearest Lat and see how fast you can run.

OK, second story: Estonia has recently liberated what is known as a ccTLD - Country Code Top Level Domain. The right to have your website named stuff.ee, essentially. Previously only legal entities, companies, could get a .ee address, for free, and only one. Individuals could get a .pri.ee address, which was supposed to be the equivalent of .co.uk, but never caught on. Now .ee domains are available to anyone (I just registered antyx.ee and antyx.eu, so don't even think about it, you bastards), but at a price. 20 Euro or so per year. This has gotten a lot of people so riled up that they actually started a petition.

Now, to be fair, a lot of their gripes are with the way the domain reform was conducted. Apparently there was a lot of incompetence and impropriety involved, and I have no cause to doubt them on this part. What does surprise me is the amount of piss and vinegar being spewed about, on the count of the domain's price.

Yes, 20 Euro per year is higher than any other ccTLD in Europe, and the price has not been meaningfully justified. But this is still a trivial sum for any project being pursued by anyone, even an individual, with any vigor. I suspect antyx.net has gotten me more free pints than 20 Euros' worth per year, and I don't even own antyx.com!Now excuse me while I go drink red wine and stare at the Bosphorus.

Q: What will be the ultimate exchange rate between the kroon and the Euro?

A: [...]Do you think I would dare return to Estonia if I announced on July 13th that the exchange rate will not be 15,6466? That we decided to make it cheaper... Do I look suicidal?

---Q: When will the pensions start growing? When will the teachers' salaries go up? When will the doctors' salaries go up?

A: When we start earning more.

Q: [...]So teachers and doctors shouldn't hope for raises in 2011.

A: No, they shouldn't. We're actually quite happy that the decline is over, and we'll be licking our wounds for a while.

Q: But are there any cuts coming in these areas?

A: No, there really aren't. I can't see any sensitive cuts coming, those have already been made. Of course, a lot depends on how quickly employment recovers. Too fast a recovery is not good, that would mean that structural improvements have not been thorough.

---Q: For ten years, there's been talk of necessity-based social benefits. Any progress there?

A: That's the political process for you, common sense does not prevail. When you talk about [free school lunches], some people will think that it's a fundamental question in education. I say, my child doesn't need it. It's embarassing for me to use it. I didn't get this freebie in my time, we didn't get the freebie during socialism.

Now, some people will cry that saving money on children is unthinkable. Let's just admit that a child is primarily the responsibility of the parent, and the areas where we really do pay out massively are specific services: education, healthcare, after-school activities. But food and clothes... Most parents, taxpayers, should be making that choice for themselves.

That's just one example. Look at the 300-kroon child benefit, that's not very necessary. When we start looking at how much good it's actually doing, the real value is quite modest.

---Q: When you talk about unnecessary [tax] exceptions, do you mean VAT discounts as well?

A: Yes. Tax discounts create a potential for corruption. It is an extremely expensive way for politicians to gather popularity. At the same time, they have no social justification, as they benefit those who consume more, and buy more expensive goods. There is no economic justification either.

Tax exceptions are justifiable in the case of medical drugs. These are goods with a controlled usage, and largely paid for by the state anyway. Tourism too, to some degree, since there you are talking about exports, and by definition exports have a zero tax rate, so the discounted rate there is understandable.

[...]This is a Pandora's box, and there are attempts to close it at the European level as well. VAT should be a neutral tax, applied irrespectively of the type of goods, and without scheming for preferences. That's how it was intended, it's just that different countries have historical privileges that are very hard to get rid of.

At the same time, I want to say that in the short term you will not be hearing any news on this issue. Don't misunderstand. To repeat one more time - there are no tax increases planned. I would love to get rid of the exceptions, but I don't have the power to do that. The finance minister does not have the political support.

---Q: Are there any realistic opportunities for taxes to go down any time soon? Even people who otherwise have no love for Reform Party policies admit that labour taxes in Estonia are too high.

A: On the one hand I agree that the labour tax burden is too high, but usually the people who speak out about it leave out the hidden tax burden of other states - things such as contributions to various funds.

In terms of competitiveness, we need to reduce labour taxes, and in social terms, the tax-free wage minimum is understandable, but in economic terms what actually matters is the upper limit. Very good specialists cannot be paying the full measure of social tax, as they will never use even a fraction of what they pay in. The social tax ceiling is one issue on which we have to decide.

Q: Understanding is one thing, but I asked about political opportunities: are tax cuts coming?

A: Doesn't look that way. The budget's main priority is cutting costs. We want to lower the labour tax burden and that's one area of discussion, but this will not be resolved before the elections.

These are painful issues. The land of unbridled demagoguery. I think we need the tax changes to settle down on the European level, so we too start to understand that taxing consumption makes more sense than taxing labour. But usually this is where the hysteria begins, that the poor are paying more.

Taxing consumption is a trend. It's a trend that does not damage the economy. What is good for the economy is usually a far more important question for the poor than for the rich, who can get by anyway. In this sense, social democrats are quite one-sided. They look at things in a static way, who to take from and who to give to. If you take from the wrong place, then those who don't have a lot to give, they'll end up giving away the last thing they have - their jobs. [...] For the poor person, what is very important is what makes for a lesser burden on the economy. He doesn't see that the social and income tax is a tax on himself, and if you increase that burden, you increase the likelyhood of him losing his job. But consumption is something that people can control, to some extent. Income and social tax is paid by the company accountant, and the employee doesn't understand that this is part of the cost of a job.

---Q: State contributions to the pension pillars - are they coming back?

A: They are absolutely coming back.

Q: Was [pausing the tax for such a short time] a right decision, or a silly one?

A: It was not silly. I was not the one who came up with the idea, but I applaud my predecessor for having the guts to put forward this proposal (to pause the contributions). Bringing that back will have some problems, the 6 and 3, some complicated schematics. I'd have left out the compensation. We'll live to regret it.

Stopping the contributions at the same time as losing the mandatory savings was reasonable. But you can't start compensating for the crisis later. It's a poor compromise, but it's been decided, and the state has made a promise.

---Q: What did you think of the slogan "Making Estonia one of Europe's five richest states in 15 years"?

A: I didn't think anything of it.

Q: When this slogan came out, I did a little research online, whether this goal was even statistically possible, and it seemed to me that it wasn't.

A: Theoretically it was actually possible. Yes, there was some fudging involved. For example, when we discussed it, there was the question of whether we should include Norway and Switzerland - they're part of Europe, but not the European Union. But I did not support it, as it depends on quite a lot of external factors that we cannot influence.

Also, politics and campaigning is often quite removed from actual people and reality. I remember walking in the city and seeing Hanno Pevkur on a poster, promising "A better salary for everyone!". I thought to myself, look at that, a young politician and such a populist statement! Then I got to the defense ministry building, and saw the same poster with my face on it.

Wednesday, June 30, 2010

Friday, June 25, 2010

Giovanni Angioni of the Estonian Free Press contacted me to request a comment. The text below is a response to that. Some of these points are recycled from previous articles on AnTyx and elsewhere.

1) Estonia needs to enter the Eurozone for political reasons, not economic ones.

The country has maintained a peg to the Euro and the preceding Deutschmark at the same level for 18 years. Thanks to the currency board system, every cash kroon ever issued is covered by liquid assets. The peg is not volatile, it does not rely on market confidence, and it cannot be abandoned in a sudden sweeping move for legislative reasons. (I have seen a scenario for overnight devaluation without making the move public in the Riigikogu, but this relied on a very iffy loophole and would have almost certainly fallen to a constitutional challenge.)

In that sense, there is indeed no rush to join the Euro. Economically, Estonia could continue with the kroon, maintaining the peg, and would suffer very little penalties.

There are two main political reasons why Estonia is joining the Eurozone now. One is down to the government, the other is down to the people.

The government needs the Euro to justify its austerity measures. A balanced budget and a tiny public debt (indeed, still lower than the country’s reserve assets) have been a core value of Estonia since independence, but in a crisis this big, there is a natural desire to spend one’s way out of a hole: borrow money to support people who have fallen on hard times. Inevitably, this is what the opposition has been advocating. Instead the government has chosen to stay its course, slashing jobs and salaries in the public sector and raising taxes. In order to not get crucified, the governing coalition (which actually holds a narrow minority in the parliament and needs to negotiate with small parties to pass legislation) has explained away the need for these measures by the relatively clear numbers of the Maastricht criteria. The recession, high unemployment and lack of consumer confidence have put enough pressure on prices that inflation was actually negative in 2009; the last barrier to entry was the 3% budget deficit limit. Remarkably, the milestone was achieved with a comfortable margin (at only 1.7%).

The people of Estonia want the Euro because it is a mark of deeper integration. This is almost never spoken of aloud, but Estonia’s foreign policy is just about entirely driven by the desire to prevent another Russian occupation. Estonia is now a member of NATO and the EU, but that is not enough for Estonians to trust their allies. The country seeks a deeper integration – deep enough that European politicians will not be able to afford to surrender it in a chess game of interests with Russia. The Euro is a hallmark of that level of integration. Foreign readers may find it astounding, but remember that this is not a thing often said out loud. It is a nagging worry that lingers at the periphery of the Estonian psyche. Remember also that the war in Georgia two years ago reinforced this belief. We are, without question, paranoid. That doesn’t mean they’re not after us.

2) Even if the Euro fails, it will not be disastrous for Estonia.

The best thing that could happen to Estonia, economically, is a massive crash of the Euro on January 2nd. The structural problems of the Eurozone as a whole do not scale down to Estonia, a tiny country with lower wage levels and living standards. If the Euro is devalued and the Eurozone itself holds, it will be an isolated market of 330 million consumers, who cannot afford imported goods, and desperately need to find cheaper labor domestically. Industrial investment will flow into Estonia, and its production capacity will skyrocket (in relative terms), as we steal back the jobs that went to China. This will stimulate a convergence of Estonian living standards with French and German ones far quicker than EU structural funds ever could.

If the Euro crashes and the Eurozone is disbanded, we simply go back to the kroon, re-pegging it against the Neue Deutschmark. The sum total of our losses is the collateral we’ve deposited at the European Central Bank, and the cost of re-printing the banknotes. This is a calculated risk that we just have to accept. The good news is that the forces that actually decide if the Eurozone persists, and control the resources needed to hold it together, have far more to lose in its disappearance than we do.

The ability to devalue at a snap is great for a large, self-sufficient economy. If Estonia is cut off from foreign markets, it can just about grow enough food for 1.3 million residents, maybe. Our value-adding manufacturing industry is actually bigger than most people imagine, but even stimulated by a cheap kroon, it will not be enough of an economic powerhouse. Exchange-rate penalties would price imports out of the consumer’s reach, and our real living standards would drop down to the level of the mid-90s, which is orders of magnitude worse than this recession has produced to date.

Beyond that, there is a tremendous amount of households that struggle with a mortgage denominated in Euros. Devaluation would trigger a wave of defaults that would devastate the Swedish banks that issued them, and leave Estonians without property. (The same goes for businesses which have taken out loans to expand and re-tool.) The embarrassment caused by that alone would negate any influx of investment capital interested in the decreased labor costs.

Meanwhile, Estonia’s most valuable assets – highly skilled professionals – either already have contracts that list their prices in Euros, or are mobile enough to simply pick up and move to where their talents will be better compensated. Decreased labor costs and the associated increase in competitiveness will either not apply to high-tech sectors at all, or the effect will be very minor.

We cannot abandon the Euro peg with any real benefit. Switching to the Euro on the eve of its crash will bring some short-term trouble, but far bigger long-term benefits. Continuing with a pegged kroon while the Eurozone is repaired will deny us some relatively minor, but potentially useful benefits.

Thursday, June 24, 2010

The European Union was built by a process of piecemeal social engineering, indeed it is probably the most successful feat of social engineering in history. The architects recognized that perfection is unattainable. They set limited objectives and firm deadlines. They mobilized the political will for a small step forward, knowing full well that when it was accomplished its inadequacy would become apparent and require further steps. That is how the coal and steel community was gradually developed into the European Union, step by step.

George SorosHumboldt UniversityBerlin, GermanyJune 23, 2010

The full speech is absolutely worth reading. It is a great clarification of some aspects of the Euro's structure, and the situation surrounding it. I don't necessarily agree with Soros that deflation is a Bad Thing - of course, he does go on to say that the EU needs to invest into education and infrastructure, and mentions that the reason Germany is such a powerhouse in Europe is that it is a competitive, efficient country, and a lot of others aren't.

Labour efficiency is Estonia's next great target. The milestone we should be aiming for, now that we've achieved Euro entry, is a positive trade surplus. Currently, Estonia's IT sector creates and exports a huge amount of added value that cannot be properly reflected in financial statistics, because of the way the IT sector works - and the way that Estonian subsidiaries of foreign corporations work. IT will remain a core competence of Estonia's, and we should support it (the big thing there is an improvement in the quality of education), but to safeguard the economy, we need to make sure that Estonia retains and increases the actual production capacities it has. That is the long-term backbone of an economy.

Thursday, June 17, 2010

Why is there no self-storage available in Estonia? I've even seen a place like that in Latvia, it's just off the Tallinn highway on the outskirts of Riga.

Get a prefab warehouse building in an industrial park, separate it into units, let people rent out a unit and put all their unnecessary shit there. Have a store on-site that sells packaging materials and boxes and stuff. Partner with a kolimistakso company.

How much would you pay for something like that? I figure, for the space of a regular one-car garage - let's say 20m2 and 2,5m high - I'd definitely pay a hundred Euro a year. Just to store things that I don't need lying around my apartment.

I've considered just renting or buying a garage, but with a storage space I would not need to worry about keeping it warm and dry, and it would provide some reasonable level of security (cameras, at least).

There are laohotell services, but that's not really for consumers, it's just space on a shelf where you can put your standard europallet.

Monday, June 14, 2010

I moved out of my parents' place in Tallinn when I was 18. Went to university in Tartu, lived in a really shitty dorm. Owned nothing but a pan, a pot and a computer. Moved to a better dorm, got my old TV over to Tartu. Graduated, moved to a rental apartment, fit my entire life into a 1988 Honda Accord sedan. The apartment came with an old mattress on the floor; that lasted one winter. Too cold. So I went to Sotka and got a bed. Eventually I also got a nice chair. When I moved from the rental apartment to the one I bought, three years ago, I actually had to make several trips (in a significantly roomier 1993 Mazda 626 hatchback), as well as enlisting the help of a friend with a minivan to move the bed.

The chair's been thrown out since, but the bed is still around. There's nothing much wrong with it, but it's only 105cm wide. That's more than enough for one person. When fitting two, it's in that death zone: manageable, but hella uncomfortable. Honestly, I've never been able to actually just sleep next to a girl in that bed, I'm always really cranky in the morning. Maybe that's why I haven't been able to make a relationship work in the long term. The too-comfy-for-one bed has become a self-fulfilling prophecy.

So here's my dilemma. I've gone around the furniture shops in Tartu. I need a 160cm wide bed, the jenkkivoodi type (set of mattresses on legs), since my apartment has a 165cm wide sleeping nook. There is a suitable bed in Sotka that costs six thousand kroons. There's one next door, in Asko, that costs thirteen thousand (but supposedly used to cost twenty-two). The more expensive one is indeed more comfortable. Is it worth more than twice the price? Is there anywhere besides Asko/Sotka, Masku, E-Kaubamaja and Teguri Kaubamaja that I need to check out? Is there an awesome local Estonian mattress manufacturer that can give me a great product at a decent cost? (All things being equal, I am willing to pay a small premium for keeping the money in the local economy.)

Monday, May 31, 2010

* I'm not going to talk in detail about the 750 billion Euro rescue plan, here's a good start - the non-trivial bit there to which I want to call your attention is the fact that the ECB will now start buying Eurozone bonds on the open market. Effectively, the sovereign debt of EU member states will be taken over by the EU's central authorities. It won't be a huge shift, at least for now, but it can be very significant in the long term: a way for the EU's main contributors to impose their will on indebted countries via a means that is entirely outside the EU treaties and protocol. The ECB is supposedly independent, but let's face it, the countries that are responsible for most of its budget are also responsible for most of its policy.

* A curious scenario of differentiating between the trustworthiness of Germany and Greece without destroying the Eurozone. Probably won't happen as described, but might be implemented in part, at least on a perception level.

* Comedy Estonia is back in Tallinn! June 9th, 8pm, at Drink Baar. Tickets should be on sale today for 75eek. Tickets at the door will be more expensive and limited. Drink is not a huge space, so if you're interested, get yours soon. All-new sets from your favourite comedians (including yours truly), plus some new faces.

* It is increasingly likely that we will be having a big comedy show in Pärnu as part of the International Hansa Days. June 25th-26th. If you're around at all, come and see us perform, we'll have an excellent lineup there. Yes, yes, I know it's just after Jaanipäev, it's not like you're going to work on Friday anyway.

* You may have noticed the No Peanuts! banner to the right there. I've translated the manifesto for them into Estonian, and have joined the directory. It's a good cause and I agree with their principles entirely.